Student Loan Payments To Resume January 2023 | Personal Capital
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Under Student Loan Forgiveness, Payments Will Resume in January 2023

As of now, federal student loan payments are suspended through December of this year.

When do student loan payments resume?

The pause on student loan payments was set to end August 31, but as part of President Biden’s student loan forgiveness program, the moratorium on payments, interest accrual, and collections on most federal student loans has been extended one final time through December 31, 2022.

One of the first actions the federal government took after the breakout of the COVID-19 pandemic was to suspend student loan payments. All federal student loans were placed into forbearance, and the interest rate was set to 0% on March 13, 2020.

While payments were originally set to resume later in 2020, they’ve been pushed back several times under both the Trump and Biden administrations. Now that the White House has announced student loan forgiveness up to $10,000 for most borrowers and  $20,000 for PELL grant recipients, the pause through December is supposed to be the final extension.

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If you still have a balance after student loan cancellation, here’s what you need to know about payments resuming. 

How to prepare for your student loan payments

It’s been more than two years since federal student loan borrowers were required to make loan repayments. And it’s safe to say that plenty of borrowers aren’t prepared to add them back into their monthly budgets. Here are four things you can do to start preparing for student loan repayment.

1. Figure out how much you owe

It may have been a while since you’ve checked in on your federal student loan account. If you’ve graduated since loan repayments were paused, you may never have checked it. 

The first step to preparing for loan payments to start again is to figure out exactly how much you owe. You can use the government’s free resource for learning about repayment based on where you are in the process. 

Remember – The White House’s student forgiveness program is expected to go into effect in the next few weeks. If you are single and make under $125,000 or married and your household makes less than $250,000, then you will likely see a $10,000 reduction to your balance ($20,000 if you received a PELL Grant). 

However, for borrowers with large amounts of student loan debt, loan forgiveness won’t likely wipe out all of their debt. While the amount you owe might seem daunting even after loan forgiveness, it’s better to face the issue head-on and look at the big picture.

2. Determine your monthly payment

The next step to getting ready to make your student loan repayments is to figure out what your monthly payment will be. A key part of the student cancellation program is that the way payments are calculated has changed. If you’re on a standard repayment plan, then your payment will be recalculated based on the new balance. If you’re on an income-driven or graduated repayment plan, then your payment will now be calculated as 5% of your discretionary income instead of the previous level of 10%.

3. Build up your emergency fund

Once payments resume, student loan borrowers who did not make payments during the pause are going to have less disposable income available in their budgets. As a result, less money will be available to put toward other financial goals and financial emergencies that may come up.

Before payments resume, now is the time to make sure you have a healthy emergency fund in place. There’s some debate among financial experts, but most recommend saving enough to cover 3-6 months of expenses.

4. Make room in your budget for the payments now

Don’t wait until student loan repayments resume to make room for them in your budget. You can get used to having that extra expense in your budget and have some time to adjust any spending habits that might cause you to go over budget. You can use free online personal finance tools to track your monthly expenses and build a sustainable budget.

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But what should you actually do with the money you set aside for those payments?

Your first option is to use that money to put toward your emergency fund, any high-interest debt you have, or another financial goal you have. You could also actually start making student loan payments early. Because there’s no interest on them right now, your payments will be more impactful than they will be when the interest kicks back in.

Another strategy you can use is to set aside the money you would be putting toward loan payments in high-yield savings accounts. When loan payments kick back in, you can make one large lump-sum payment on your loans or put the money towards something else.

What to do if you can’t afford your payments

Unfortunately, millions of Americans are still facing financial hardship from the pandemic. A recent Pew Research Center report found that about half of non-retired adults will have a hard time reaching financial goals because of financial setbacks from the pandemic.

For many, these financial setbacks will make it hard to make student loan repayments. If you don’t think you’ll be able to afford your payments in September 2022, you can:

Unfortunately, millions of Americans are still facing financial hardship from the pandemic. A recent Pew Research Center report found that about half of non-retired adults will have a hard time reaching financial goals because of financial setbacks from the pandemic.

For many, these financial setbacks will make it hard to make student loan repayments. If you don’t think you’ll be able to afford your payments in January, even after student loan forgiveness, you can:

1. Switch to an income-driven repayment plan

If you’ve been on a standard repayment plan for your loans, consider switching to an income-driven plan. The federal government offers four different income-driven plans which cap your payments at a certain percentage of your income. Again, under the student loan cancellation program, payments will be limited to 5% of your discretionary income.

There’s a loan simulator on the federal financial aid website to help you determine what your payments would be under a different payment plan. If you’re ready to apply for an income-driven plan, you can request it through the Department of Education website.

2. Apply for loan deferment or forbearance

If you can’t afford to make payments at all in January, then you can request deferment or forbearance of your loans. Both deferment and forbearance allow you to request a student loan payment pause due to financial hardship. But they’re typically used in different circumstances.

Depending on the type of loans you have, interest may accrue while your payments are paused and will capitalize when your payments resume if you don’t pay it off first. If you do apply for forbearance or deferment, be sure to make your loan payments until your request is approved so your loans don’t go into delinquency or default.

The bottom line

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Vance is CERTIFIED FINANCIAL PLANNER® and Chartered Financial Consultant® who has been with Personal Capital since September 2016. He was drawn to Personal Capital for its fiduciary standard and technology-driven planning. After holding various roles with the company, he now works with clients in Personal Capital's Private Client Group.
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Building my emergency fund
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